M/S. NANDI HOSPITALITY SERVICES PRIVATE LIMITED,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-3(1)(1), BANGALORE

PER BENCH:

These appeals by the assessee in ITA Nos.294 to 296/Bang/2023 are directed against the order of NFAC, Delhi dated 12.1.2023 for the AYs 2018-19 to 2020-21 passed u/s 250 of the Income-tax Act,1961 ['the Act' for short]. The issue in all these appeals are common in nature except figures, hence, these are clubbed together heard together and disposed of by this common order for the sake of convenience. The grounds of appeal raised by the assessee in ITA No.294/Bang/2023 are reproduced as under:

ITA Nos.294 to 296/Bang/2023 Nandi Hospitality Services Pvt. Ltd., Bangalore

Page 2 of 22` 1. That the order of the learned Commissioner of Income-tax (Appeals) in so far it is prejudicial to the interests of the appellant is bad and erroneous in law and against the facts and circumstances of the case.

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Page 3 of 22` for the purpose of adjudication of above ground. Accordingly, by placing reliance on the judgement of Hon’ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 (SC) we inclined to admit the additional ground for the purpose of adjudication as there was no investigation of any fresh facts otherwise on record and the action of the assessee is bonafide.

ITA No.294/Bang/2023: 4. Facts of the case are that the assessee, Nandi Hospitality Services Private Limited, is a private limited company and is assessed to tax under PAN: AACCN8275D. It is carrying on its business of providing Hospitality services such as Housekeeping, Catering & other hospitality services. Its Registered address is No.45, 1st Floor, 1st Cross, 80 Feet Road, Opp. Indian Oil Petrol Bunk, Chandra Layout Bangalore - 560072. It is maintaining regular books of accounts and all the necessary details required for the purpose of statutory and tax audit. It is following the approved method of mercantile system of accounting. Its accounts are regularly audited under section 44AB of the Income Tax Act, 1961 and the audit reports are filed.

4.1. For the assessment year 2018 - 2019, based on the audited statement of accounts, the assessee has computed its total income, as per the provisions of the Income Tax Act, 1961 after effecting several adjustments to the net profit, arrived at in the audited accounts, in respect of various inadmissible(s) and has filed its return of income, on 31st October 2018, declaring a total income of Rs. 54,68,020/- and tax liability of Rs.14,08,015/- was paid and there was refund of Rs. 42,340/- .

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Page 4 of 22` 4.2. The Learned Deputy Commissioner of Income Tax, CPC has sent communication under section 143(1)(a) of the Act. Since the Authorized Representative does not regularly check the email and Income tax portal, the Company could not file its response within time.

4.3 Return of income was processed u/s 143(1) on 12th November 2019, where the assessee's total income has been recomputed at Rs. 86,05,060/-. The following item of addition has been made by the Learned Deputy Commissioner of Income Tax, CPC:

a) Addition of Rs. 14,78,835/- Disallowance of expenditure indicated in the audit report but not taken into account in computing file total income (Section 36(1)(va) towards disallowance of PF and ESI Contribution of Employees') b) Addition of Rs. 16,58,207/- Disallowance of statutory payment indicated in the audit report but not taken into account in computing the total income (Section 43B towards disallowance of Service Tax not paid within due date)

4.4 Regarding the first item of addition, it is mentioned in the Audit report as below under Observations / Comments / Qualifications of to Form 3CD: There has been delay in remitting Employees Contribution to PF & ESI for certain months. However, the same has been paid within the due date of filing the return of income. The delayed payments have been considered allowable as deduction on the basis of the decision of the Supreme Court held in the case of Principal Commissioner of Income Tax-II Jaipur Vs. Rajasthan State Beverages Corporation Ltd. and other cases. (Supreme Court CIT Vs. Alom Extructions Ltd (2009) 319 ITR 306 (SC))

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Page 5 of 22` 4.5 Records clearly show that employees' contribution towards EPF and ESI has been paid and deposited to the fund concerned before filing of return of income u/s 139(1). However, due to cash flow problems and resulting financial hardship there was delay of a few days in crediting the same to respective funds. It is a settled provision of law that the benefits under section 43B of the Act. can be extended towards employee's contribution as well if the same is remitted within the due date i.e. the due date prescribed under section 139(1), as upheld in the judgement passed by Hon'ble High Court of Karnataka during Writ Appeal No. 4077 of 2013 (T-IT) in the case of The Commissioner of Income Tax vs. M/s Spectrum Consultants Private Limited and ITA No. 480/2013 in case of M/S. Essae Teraoka Pvt. Ltd vs DCIT dated 04.02.2014. In the said case, clause (b) of section 43B was deeply examined by the Hon'ble High Court of Karnataka by referring to the provisions of the Employee's Provident Funds Scheme, 1952, especially section 29 and 30, wherein "contribution" is defined to include both employer and employee's portion. Further, reliance was placed upon various judicial decision of Hon'ble Supreme Court in case of CIT vs. Vinay Cement Ltd., 213 GTR 268 (SC) and CIT v. Alom Extrusions Ltd. (2009) 319 ITR 306 (SC) besides the decisions in CIT vs Sabari Enterprises.

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Page 6 of 22` made an addition of Rs. 44,78,835/-. The Total demand raised was Rs.9,93,740/-

5.1 He submitted that the assessee does not have any objection towards the second item of addition of Rs. 16.58.207/-. But the assessee is aggrieved with the decision of the ld. AO and hence the assessee went in appeal before the NFAC who has dismissed the appeal of the assessee. Aggrieved, the assessee is in appeal before us.

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Page 7 of 22` same while processing the return under section 143(1) of the Act, apparently by applying the provisions of section 143(1)(a)(iv) of the Act. For the sake of convenience, the relevant provisions is reproduced hereunder:-

“143(1) Where a return has been made under section 139, or in response to a notice under sub section (1) of section 142, such return shall be processed in the following manner, namely:- (a) The total income or loss shall be computed after making the following adjustments, namely:- (iv) disallowance of expenditure (or increase in income) indicated in the audit report but not taken into account in computing the total income in the return.” 4. From the aforesaid provisions, it is very clear that the said clause (iv) would come into operation when the Tax Auditor had suggested for a disallowance of expense or increase in income, but the same had not been carried out by the assessee while filing the return of income. As stated supra, the tax auditor had not stated in the instant case to disallow Employees Contribution to Provident Fund wherever it is remitted beyond the due date under the respective Act. Hence, in our considered opinion, the said action of the Ld.CPC Bangalore in disallowing the employees’ contribution to Provident Fund while processing the return under section 143(1) of the Act is against the provisions of the Act as it would not fall within the ambit of prima facie adjustments. Our view is further fortified by the co-ordinate bench decision of this Tribunal in the case of Kalpesh Synthetics Pvt Ltd vs DCIT reported in 195 ITD 142 (Mum). The relevant portion of the decision is reproduced below:-

“6. Coming to the mechanism of application of section 143(1), we find that the first proviso to section 143(1) mandates that "no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode" and, under the second proviso to section 143(1), “the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made”. The scope of permissible adjustments under section 143 (1)(a) now is thus much broader, and, as long as an adjustment fits the description under section 143(l)(a) (i) to (v), read with Explanation to section 143(1), such an adjustment, subject to compliance with first and second proviso to section 143(1), is indeed permissible. I however, important to take note of the fact that unlike the old scheme of 'prima facie adjustments' under sec 143(l)(a), the scheme of present section 143(1) does not involve a unilateral exercise. The very fact that an opportunity of the assessee being provided with an intimation of 'such adjustments' [as opposed under sec 143(1)], in writing or by electronic mode, and "the response

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Page 8 of 22` received from the assessee, if any" to be "considered before making any adjustment" makes the process of making adjustments under section 143(1), under the pre legal position, an interactive and cerebral process. When an assessee raises objections to proposed adjustment under section 143(1), the Assessing Officer CPC has to dispose of such objections before proceeding further in the matter - one way or the other, and such disposal of objections is a quasi judicial function. Clearly, Assessing Officer CPC has the discretion to go ahead with the proposed adjustment or to drop the same. The call that the Assessing Officer CPC has to take on such objections has to be essentially a judicious call, appropriate to facts and circumstances and in accordance with the law, and the Assessing Officer CPC has to set out the reasons for the same. Whether there is a provision for further hearing or not, once objections are raised before Assessing Officer CPC and the Assessing Officer CPC has to dispose of the objections before proceeding further in the matter, this is inherently a quasi judicial function that he is performing, and, in performing a quasi judicial function, he has to set out his specific reasons for doing so. Disposal of objections cannot be such an empty formality or meaningless ritual that he can do so without application of mind and without setting out his specific reasons for rejecting the same. Let us, in this light, set out the reasons for rejecting the objections. The Assessing Officer-CPC has used a standard reason to the effect that "As there has been no response/the response given is not acceptable, the adjustment(s) as mentioned below are being made to the total income as per provisions of section 143(l)(a)", and has not even struck off the portion inapplicable. To put a question to ourselves, can casually assigned reasons, which are purely on a standard template, can be said to be sufficient justifications quasi judicial decision that the disposal of objections inherently is? The answer must be emphatically in negative. It is important to bear in mind the fact that intimation under section 143(1) is an appealable order when consideration of objections raised by the assessee is an integral part of the process of finalizing intimation under section 143(1) unless the reasons for such rejection are known, a meaningful appellate exercise can hardly be carried out. When the first appellate authority has no clue about the reasons which prevailed the Assessing Officer- CPC, in rejecting the submissions of the assessee, because no such reasons are indicated by the Assessing Officer CPC anyway, it is difficult to understand on what basis the first appellate authority in judgment over correctness or otherwise of such a rejection of submissions. Whether the statute specifically provides for it or not, in our considered view, the need for disposal of objections by way of a speaking order to be read into it as the Assessing Officer CPC, while disposing of the objections raised by the assessee is performing a quasi judicial function, and the soul of a quasi judicial decision making is in the reasoning for coming to the decision taken by the quasi judicial officer. While on this aspect of the matter, we may usefully refer to the observations made by the Hon'ble Supreme Court, in the case of Union Public Service Commission v. Bibhu Prasad Sarangi [2021] 4

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Page 9 of 22` SCC 516. While these observations are in the context of the judicial officers, these observations will be equally applicable to the decisions by the quasi judicial officers like us as indeed the Assessing Officer CPC. In the inimitable words of Hon'ble Justice Chandrachud, Hon'ble Supreme Court has made the following observations: Reasons constitute the soul of a judicial decision. Without them, one is left with a shell. The shell provides neither solace nor satisfaction to the litigant. We are constrained to make these observations what we have encountered in this case is no longer an isolated aberration. This has become a recurring henomenon………….How judges communicate in their judgments is a defining characteristic of the judicial process. While it is important to keep an eye on the statistics on disposal, there is a higher value involved. The quality of justice brings legitimacy to the judiciary

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Page 10 of 22` flag the issues which are required to be considered by the stakeholders. On such fine point of law, as the nuances about the manner in which Hon'ble Courts have interpreted the legal provisions of the Income Tax Act in one way or the other, these audit reports are inherently even less relevant - more so when the related audit report requires reporting of a factual position rather than express an opinion about legal implication of that position. In the light of this ground reality, an auditee being presumed to have accepted, and concurred with, the audit observations, just because the appointment of auditor is done by the assessee himself, is too unrealistic and incompatible with the very conceptual foundation of independence of an auditor. On the one hand, the position of the auditor is treated so subservient to the assessee that the views expressed by the auditor are treated as a reflection of the stand of the assessee, and, on the other hand, the views of the auditor are treated as so sacrosanct that these views, by themselves, are taken as justification enough for a disallowance under the scheme of the Act, There is no meeting ground in this inherently contradictory approach. Elevating the status of a tax auditor to such a level that when he gives an opinion which is not in harmony with the law laid down by the Hon'ble Courts above- as indeed in this case, the law, on the face of it, requires such audit opinion to be implemented by forcing the disallowance under section 143(1), does seem incongruous. Learned Departmental Representative's contentions in this regard that the observations made in the tax audit report, in the light of the specific provisions of section 143(l)(a)(iv), must prevail- more so when the tax auditor is appointed by the assessee himself, is clearly unsustainable in law. While section 143(l)(a)(iv) does provide for a disallowance based purely on the "indication" in the tax audit report inasmuch as it permits "disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return", and it is for the Hon'ble Constitutional Courts above to take a call on the vires of this provision, we are nevertheless required to interpret this provision in a manner to give it a sensible and workable interpretation. When the opinion expressed by the tax auditor is contrary to the correct legal position, the tax audit report has to make way for the correct legal position. The reason is simple. Under Article 141 of the Constitution of India, the law laid down by the Hon'ble Supreme Court unquestionably binds all of us and the Hon'ble Supreme Court has, in numerous cases- including, for example, in the case of East India Commercial Co. Ltd. v. Collector of Customs 1962 taxmann.com 5. speaking through Hon'ble Justice Subba Ra observed, inter alia, as follows:

………Under article 215, every High Court shall be a Court of record and shall have all the powers of such a Court including the power to punish for contempt of itself. Under article 226, it has a plenary power to issue orders or writs for the enforcement of the fundamental rights and for any other purpose to any person or authority, including in appropriate cases any Government, within its

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Page 11 of 22` territorial jurisdiction. Under article 227 it has jurisdiction over all Courts and Tribunals throughout the territories in relation to which exercises jurisdiction. It would be anomalous to suggest that a Tribunal over which the High Court has superintendence can ignore the law declared by that Court and start proceedings in direct violation of it. If Tribunal can do so, all the subordinate Courts can equally do so, for there is no specific provision, just like in the case of the Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior Tribunal that all the Tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working: otherwise, there would be confusion in the administration of law and respect for law irretrievably suffer”

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Page 12 of 22` 9. What a tax auditor states in his report are his opinion and his opinion cannot bind the auditee at all. In light, when one considers what has been reported to be 'due date' in column 20(b) in respect of contributions received from employees for various funds as referred to in section 36(l)(va) and the fact that the expression ‘due date’ has been defined under Explanation (now Explanation 1) to section 36(1 )(va) provides that "For purposes of this clause, 'due date' means the date by which the assessee is required as an employer to credit employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise", one cannot find fault in what has been reported in the tax audit report. It is not even an expression of opinion about the allowability of deduction or otherwise; it is just a factual report about the fact of payments and the fact of the due date as per Explanation to section 36(l)(va). This due date, however, has not been found to be decisive in the light of the law laid down by Hon'ble Courts above, and it cannot, therefore, be said that the reporting of payment beyond due date in the tax audit report constituted "disallowance of expenditure indicated in the audit report but taking into account in the computation of total income in the return" as is sine qua non for disallowance of section 143(l)(a)(iv). When the due date under Explanation to section 36(l)(va) is judicially held to be decisive for determining the disallowance in the computation of total income, there is no good reason to proceed on the basis that the payments having been made after this due date is "indicative" of the disallowance of expenditure in question. While preparing the tax audit report, the auditor is expected to report the information as per the provisions of the Act, and the tax auditor has done that, but that information ceases to be relevant because, in terms of the law laid down by Hon'ble Courts, which binds all of us as much as the enacted legislation does, the said disallowance does not come into play when the payment is made well before the date of filing the income tax return under section 139(1). Viewed thus also, the impugned adjustment is vitiated in law, and we must delete the same for this short reason as well.

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Page 13 of 22` under section 143(l)(a)(iv). That is not the situation before us. We, therefore, see no need to deal with that aspect of the matter at this stage. 11. In a result, this appeal is allowed” 5. We are conscious of the fact that the issue on merits is decided against the assessee by the recent decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd vs CIT reported in 143 taxmann.com 178 (SC) dated 12/10/2022. This decision was rendered in the context where assessment was framed under section 143(3) of the Act and not under section 143(1)(a).

After considering the rival submissions I notice that the Hon.ble 6. Supreme Court in the case of Checimote Services (supra) has considered the issue of whether the employees' contribution paid before due date for filing the return of income u/s.139(1) of the Act otherwise allowable u/s.43 B of the Act and putting to rest the contradicting decisions of various High Courts. The relevant extract of the decision is as under:- "52. When Parliament introduced Section 43B, what was on the statute book, was only employer's contribution (Section 34(1)(iv)). At that point in time, there was no question of employee's contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-R9, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions - especially second proviso to Section 438 - was introduced tc ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and, avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, isevident from the use of

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Page 14 of 22` different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) os income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of "income" amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time - by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this this distinction between the employers’ contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 438 covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not he given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. The distinction between an employer's contribution which is 53. its primary liability under law - in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers' income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts - the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B.

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Page 15 of 22` The non-obstante clause has to be understood in the context of the entire provision of Section 43P which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of deduction per se in the form of statutory pay out. They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, isr treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction.

8.1 The Ld. A.R. has also raised on the issue that the disallowance/addition

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Page 16 of 22` cannot be made u/s 14-3(1(a) of the Act. A similar issue has been decided by the coordinate bench of the Tribunal in ITA No.188/Coch/2021 for the AY 2016- 17 vide order dated 28.07.2022 and also following the judgment of the Hon'ble Madras High Court, in which it has been held that the addition can be made u/s 143(1)(a) of the Act, the relevant para is as under: _ In this case the assessee filed his return of income belatedly and return was processed under Section 143(1)(a) of the Act by observing that "in schedule Chapter VI-A, under Part-C deduction in respect of certain incomes, in SL.No. 2.1 deduction is claimed under Section 80P however return is not filed within due date". Against this observation the assessee filed writ petition before the Hon'ble Madras High Court and the writ petition has been dismissed by observing as under: -

"7. The scope of an 'intimation' under section 143(1)(a) of the Act, extends to the making of adjustments based upon errors apparent from the return of income and patent from the record, Thus to say that the scope of 'incorrect claim' should be circumscribed and restricted by the Explanation which employs the term 'entry' would, in my view, not be correct and the provision must be given full and unfettered play. The explanation cannot curtail or restrict the main thrust or scope of the provision and due weightage as well as meaning has to be attributed to the purposes of section 143(1)(a) of the Act.

8.2 Respectfully following the above judgments, we reject the content ion raised by the assessee.

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Page 17 of 22` case of Cemetile Industries Vs. ITO (14)1, Pune in ITA No.693/Pun/2022 dated 23.11.2022 wherein held as under: 3. We have heard Sh. Pramod Singte, Ms. Deepa Khare, Sh. Sanket Joshi, Sh. Sharad A. Vaze, Sh. Mahavir Jain, Sh. M.K. Kulkarni, Sh. S.N. Puranik and Sh. Burhanuddin Vora (hereinafter commonly referred to as `the ld. AR’) and Sh. Suhas Kulkarni, the ld. Departmental Representative (DR). It is undisputed that the audit report filed by the assessee indicated the due dates of payment to the relevant funds under the respective Acts relating to employee’s share and the said amounts were deposited by the assessee beyond such due dates but before the filing of the return u/s 139(1) of the Act. The case of the assessee before the authorities below has been that such payments before the due date as per section 139(1) of the Act amounts to sufficient compliance of the provisions in terms of section 43B of the Act, not calling for any disallowance. Per contra, the Department has set up a case that the disallowance is called for because of the per se late deposit of the employees’ share beyond the due date under the respective Act and section 43B is of no assistance.

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Page 18 of 22` 5. Adverting to the facts of the case, it is seen that the assessee claimed the deduction for the employees’ share for depositing the same in the relevant funds beyond the due date as given in Explanation 1 to section 36(1)(va) on the strength of section 43B. The latter section opens with a non-obstante clause and provides that a deduction otherwise allowable in respect of: `(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees’ shall be allowed only in that previous year in which such sum is actually paid. The first proviso to section 43B states that: `nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.’ The main provision of section 43B, providing for the deduction only on actual payment basis, has been relaxed by the proviso so as to enable the deduction even if the payment is made before the due date of furnishing the return u/s 139(1) of the Act for that year. The claim of the assessee is that the deduction becomes available in the light of section 36(1)(va) read with section 43B on depositing the employees’ share in the relevant funds before the due date u/s 139(1) of the Act. This position was earlier accepted by some of the Hon’ble High Courts holding that the deduction is allowed even if the assessee deposits the employees’ share in the relevant funds before the date of filing of return u/s.139(1) of the Act. This was on the analogy of treating the employee’s share as having the same character as that of the employer’s share, becoming deductible u/s 36(1)(iv) read in the hue of section 43B(b). Recently, the Hon’ble Supreme Court in Checkmate Services P. Ltd. & Ors. VS. CIT & Ors. (2022) 448 ITR 518 (SC) has threadbare considered this issue and drawn a distinction between the parameters for allowing deduction of employer’s share and employees’ share in the relevant funds. It has been held that the contribution by the employees to the relevant funds is the employer’s income u/s.2(24)(x), but the deduction for the same can be allowed only if such amount is deposited in the employee’s account in the relevant fund before the date stipulated under the respective Acts. The hitherto view taken by some of the Hon’ble High Courts in allowing deduction even where the amount was deposited in the employee’s account before the time allowed u/s.139(1), ergo, got overturned. The net effect of this Apex Court judgment is that the deduction u/s.36(1)(va) can be allowed only if the employees’ share in the relevant funds is deposited by the employer before the due date stipulated in respective Acts and further that the due date u/s.139(1) of the Act is alien for this purpose.”

8.1 This issue was also decided by the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT reported in 440 ITR 518, wherein held that for assessment year prior to 2021-22, non- absentee clause u/s 43B of the Act could not apply in case of

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Page 19 of 22` amounts, which are held in Trust as was case of employees’ contribution which are deducted from their income from the employees’ income and was held in Trust by assessee employer as per section 2(24)(x) of the Act, thus, said clause will not absolve assessee employer from is liability to deposit employees’ contribution on or before due date as required in respective Act. In view of the above, the employees’ contribution towards ESI & PF made after due date mentioned in respective Act to be disallowed. On this count also, we do not find any merit in the argument of assessee’s counsel.

8.2 Further, the Hon’ble Madras High Court in the case of AA 520 Veerappampalayam Primary Agricultural Cooperative Credit Society Ltd. Vs. Deputy Commissioner of Income-tax reported in (2022) 138 taxmann.com 571 wherein held as under:

_ In this case the assessee filed his return of income belatedly and return was processed under Section 143(1)(a) of the Act by observing that "in schedule Chapter VI-A, under Part-C deduction in respect of certain incomes, in SL.No. 2.1 deduction is claimed under Section 80P however return is not filed within due date". Against this observation the assessee filed writ petition before the Hon'ble Madras High Court and the writ petition has been dismissed by observing as under: -

"7. The scope of an 'intimation' under section 143(1)(a) of the Act, extends to the making of adjustments based upon errors apparent from the return of income and patent from the record, Thus to say that the scope of 'incorrect claim' should be circumscribed and restricted by the Explanation which employs the term 'entry' would, in my view, not be correct and the provision must be given full and unfettered play. The explanation cannot curtail or restrict the main thrust or scope of the provision and due weightage as well as meaning has to be attributed to the purposes of section 143(1)(a) of the Act.

ITA Nos.294 to 296/Bang/2023 Nandi Hospitality Services Pvt. Ltd., Bangalore

Page 20 of 22` 8.3 Further, the coordinate bench of the Tribunal in MP No.117/Bang/2022 dated 30.11.2022 in the case of ACIT Vs. M/s. Sunrise Freight Movers Pvt. Ltd. wherein held as under: “5.6 Coming to the merit of the issues raised by the revenue in its miscellaneous petition, we not that Hon’ble Supreme Court in the case of CIT Vs. Saurashtra Kutch Stock Exchange case 219 CTR (SC) 90 has held that non- consideration of the decision of the jurisdictional high court/Supreme Court constitutes mistake apparent from record and is rectifiable within the meaning of section 254(2) of the Act. In Honda Siel Power Products Ltd. v. CIT 295 ITR 466, the Hon’ble Supreme Court explained the scope of rectification powers u/s/254(2) of the Act, as follows:

“Scope of the Power of Rectification

ITA Nos.294 to 296/Bang/2023 Nandi Hospitality Services Pvt. Ltd., Bangalore

Page 21 of 22` resulted to the party, which prejudice is attributable to the Tribunal's mistake, error or omission and which error is a manifest error then the Tribunal would be justified in rectifying its mistake, which had been done in the present case.” 5.7. Article 141 of the Constitution of India provides that the law declared by Hon’ble Supreme Court shall be binding on all courts within the territory of India. The law laid down by Supreme Court operates retrospectively and is deemed to the law as it has always been unless, the Supreme Court, says that its ruling will only operate prospectively.

5.8 In the light of the law as explained above, there is a mistake apparent on record in view of the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt.Ltd. (supra) though rendered subsequent to the order passed by the Tribunal and has to be rectified by holding that the disallowance made by the revenue authorities u/s.36(1)(va) of the Act was justified. Consequently, the appeal by the Assessee will stand dismissed. The order of the Tribunal will stand modified /rectified accordingly.”

8.4 Being so, in our opinion, the disallowance could be made u/s 143(1) of the Act, which has been shown in the audit report filed u/s 44 AB of the Act as this amount of employees’ share of contribution of PF/ESI which is not paid within due date stipulated in the respective Act and there is no error committed by the AO in making such disallowance. Accordingly, we dismiss all the grounds of appeals taken by the assessee in all the assessment years.

Sd/- Sd/- (Beena Pillai) (Chandra Poojari) Judicial Member Accountant Member

Bangalore, Dated 1st June, 2023. VG/SPS

ITA Nos.294 to 296/Bang/2023 Nandi Hospitality Services Pvt. Ltd., Bangalore

Page 22 of 22`

Copy to:

Asst. Registrar, ITAT, Bangalore.